Buying a home will likely be the largest financial debt you will incur in your lifetime. While borrowing a large sum of money may feel overwhelming, buying a home is an excellent investment in your future. When you are ready to buy a house, you will need a mortgage loan. Put simply, a home mortgage is a loan given by a bank or lender to help finance the purchase of a house. The mortgage is usually paid monthly over a period of many years until the borrower eventually owns the property.

A mortgage breaks down into five parts:

Collateral– When you agree to a mortgage, you sign a legal contract stating that you will repay the amount borrowed in addition to interest and other terms. The house acts as the collateral for the loan. If you do not repay the loan, the lender can take the house back through the process of foreclosure.

Principal – This is the total amount of money borrowed to purchase the home. The principal balance does not include any other factors such as interest or taxes. You can lower the principal amount of a mortgage by putting a down payment on the home.

Interest – Interest is what the lender charges you to borrow the money. This is expressed in a percentage called an interest rate.

Taxes – Your mortgage will also likely include property taxes, which vary by location and the value of your home.

Insurance – Required by the lender, homeowners’ insurance protects your home and personal property from losses against fire, weather and theft. If you make a down payment less than 20% of your home’s total value at closing, you may be required to pay private mortgage insurance, which protects the lender from defaulting on your mortgage.

For more information on mortgage programs, click on the ‘Loan Programs’ tab at the top of my page. Feel free to click any of the green links in this article to learn more about the terms we use in lending. When you are ready to buy a home, I would love to meet with you to further discuss the mortgage process. Call me today to set up an appointment!